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2007:048

M A S T E R ' S T H E S I S

Simplifying Procurement Process through E-Commerce in B2B Market

of Iran

Sara Faraji Jalal

Luleå University of Technology Master Thesis, Continuation Courses

Marketing and e-commerce

Department of Business Administration and Social Sciences Division of Industrial marketing and e-commerce

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Simplifying Procurement Process through E-Commerce in B2B Market of Iran

Supervisors:

Professor S.K. Chaharsoghi Professor Moez Limayem

Referee:

Professor M. Sepehri Professor A. Albadavi

Prepared by:

Sara Faraji Jalal

Tarbiat Modares University Faculty of Engineering Department of Industrial Engineering

Lulea University of Technology

Department of Business Administration and Social Sciences Division of Industrial Marketing and E-Commerce

Joint MSc PROGRAM IN MARKETING AND ELECTRONIC COMMERCE

2007

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In the Name of God

the Compassionate, the Merciful

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Abstract

This thesis addresses a group of business data processing simplicity e-Commerce factors that accrues benefits on the e-Commerce procurement process. The goal of this research was to build a model of factors that simplifying the procurement process by using e-Commerce. The research was conducted among 250 large enterprises and considers fifteen factors that simplify the procurement process by using e-Commerce.

Based on these research results, the model of e-Commerce factors in the procurement process "business data processing simplicity" has been developed. The research which was conducted through Principal Component Analysis is pointed out, that enterprises, which endeavor to have success in doing procurement process electronically, should simplify particularly the following sub-processes as the most important ones:

Receiving of delivery data Announcement (shipment announcement), possible supplier’s requisition request, transport ordering, reclamation solving and bidding where respondents see high possibilities to simplify them by e-Commerce. However, there can be some other factors that may influence in simplicity of the Procurement Process. Statistical modeling allowed explanation of interdependencies and co- dependencies of functional factors in the procurement chain.

In this research, I tried to collect data on the extent of significant simplicity of a set of factors through e-Commerce from the Iranian managers’ points of view who were involved in Procurement Process, Logistics and Informatics in big enterprises and industries. Then, I compared them with the data from a previous study of Slovenia situation in this regards. In the studied sample, the majority of the Iranian managers valued that the e-Commerce would significantly simplify the Procurement Process somehow the same as the Slovenians. The model of factors extracted from the Iranian data in comparison of Slovenia, was a little bit different, however, both covers the Process reengineering in two category of “Business Preparation Simplicity” and “ Business Operation Simplicity” including different sub-process.

Keywords: Factors, Reengineering, Simplicity, e-Commerce, e-Procurement, Process, Research model

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Acknowledgment

This thesis is written as my Master of Science in Industrial Marketing and e- Commerce Program of Business Administration and Social Sciences department at the Division of Industrial Marketing and e-Commerce at Lulea University of Technology joint with Engineering Department of Industrial Engineering of Tarbiat Modares University. This work provided me to understand that how people are kind and how they cooperate with researchers during conducting my research.

First of all I would like to appreciate Professor Salehi Sangari for all of his support and deep guidance during my stay at Lulea in Sweden for those few months.

Furthermore, I thank Professor Chaharsoghi and Professor Limayem as my Supervisors for their support and useful advices during my research.

I also thank the faculty members of Tarbiat Moddaress University and Lulea

University of Technology, Deans, Professors Directors, executives and Advisors for their support.

Of course, it is needless to show my sincere gratitude to all my colleagues at TAM Iran Khodro, Ministry of Commerce and Mapna Co., who helped me in distributing my questionnaire in relevant industries. And finally, I would like to especially thank my managers at Marketing and Sales department of Mapna, Mrs. Lili Mirbod and Mr.

Amir Masoud Amini, who provided me the time and confidence in making my thesis completed.

Sara Faraji Jalal April 2007

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Table of Content

1. Introduction ... 7

1.1. Background ... 7

1.2. Problem Discussion... 12

1.3. Aim of Study and Research Questions... 13

1.4. Disposition of the Thesis... 14

2. Literature Review ... 16

2.1. Procurement ... 16

2.1.1. General Procurement Definition... 16

2.1.2. The Importance of Procurement ... 17

2.1.3. Procurement Process and Activities ... 20

2.2. e-Procurement ... 22

2.2.1. General e-Procurement Definitions ... 22

2.2.2. e-Procurement Benefits... 26

2.2.3. e-Procurement Implementation Success Factors... 33

2.2.4. Impact of e-Procurement on Procurement Work ... 38

2.2.5. Importance of e-Procurement Systems in B2B Market ... 40

2.3. e-Business, e-Commerce and e-Procurement... 42

2.3.1. Impact of the Internet on Procurement... 43

2.3.2. Model of the Procurement Process onto the Internet ... 44

2.3.3. The Categorization of Impact of EC in the Procurement Process ... 45

2.4. E-Procurement Process ... 46

2.4.1. Awareness of Technology Opportunities ... 47

2.4.2. Ability to Achieve Process Effectiveness... 47

2.4.3. Readiness for e-Procurement collaboration ... 48

2.4.4. Satisfaction and Positive e-Procurement Experiences Sharing ... 48

2.4.5. Environment Changing Response ... 49

2.5. Conceptualization and Frame of Reference ... 50

3. Methodology... 54

3.1. Research Purpose ... 54

3.2. Research Approach ... 56

3.3. Research Strategy... 57

3.3.1. Experiment / Survey / Archival Analysis / History/ Case Study... 58

3.3.2. Cross-Sectional / Longitudinal / Delphi... 60

3.4. Data Collection Procedures... 61

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3.4.1. Sample Selection... 61

3.4.2. Questionnaire Design... 66

3.4.3. Piloting ... 68

3.4.4. Credibility and Measurement - Validity and Reliability... 68

3.5. Instrumentation... 70

3.5.1. Multivariate Data Analysis ... 71

3.5.2. Factor analysis... 72

3.5.3. Factor Analysis Decision Process... 72

4. Data Analysis and Results ... 83

4.1. Examining Data... 83

4.2. Stage 1: Objective of Factor Analysis... 91

4.3. Stage 2: Designing a factor Analysis ... 92

4.4. Stage 3: Assumptions in Factor Analysis... 93

4.5. Stage 4: Deriving Factors and Assessing Overall Fit... 95

4.6. Stage 5: Interpreting the Factors ... 97

4.7. Stage 6: Validation of Factor Analysis ... 103

4.8. Stage 7: Additional Uses Of Factor Analysis Results... 103

5. Finding, Conclusion and Implication ... 105

5.1. Discussions... 105

5.1.1. Business process preparation simplifying factors ... 106

5.1.2. Business process operation simplifying factors ... 107

5.1.3. Comparison between countries... 108

5.2. Conclusions ... 112

5.3. Limitations ... 112

5.4. Managerial Contributions... 113

5.5. Suggestions for Further Research ... 114

References ... 115

Appendix A ... 123

Questionnaire ... 123

Appendix B ... 127

Primary Data List ... 127

Dummy Data List ... 129

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List of Tables

Table 1: Defined Criteria for Successful Practices ...35 Table 2: E-Procurement Impact (Average Performance) ...40 Table 3: A Four-phase Migration Model of Procurement Process onto the Internet...45 Table 4: Major Factors in Procurement Process Based on Literature Review ...51 Table 5: Relative Situations for Different Research Strategies ...59 Table 6: Descriptive Statistics for Factors that Simplify the Procurement Process

by Using e-Commerce...87 Table 7: Description of Database Variables ...92 Table 8: Assessing the Appropriateness of Factor Analysis: Correlations,

Measures of sampling Adequacy, and Partial Correlations among Variables...94 Table 9: Results for the Extraction of Principal Component Analysis of Fifteen

Researched Business Data processing Simplicity Factors ...96 Table 10: Unrotated Component Analysis factor Matrix ...98 Table11: VARIMAX-Rotated Component Analysis factor Matrix...99 Table 12: Guidelines for Identifying Significant Factor Loadings Based on

Sample Size ...100 Table 13: Validation of Component Factor Analysis by Split-Sample Estimation

with VARIMAX Rotation ...104 Table 14: Business Preparation Simplifying Factors...107 Table 15: Business Operation Simplifying Factors ...108 Table 16: A Comparison of Principal Component Analysis of between Two

Countries...109

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List of Figures

Figure 1: A Model of the Internet-based B2B e-Procurement System...9

Figure 2: IT-Enabled Procurement Mechanisms ...12

Figure 3: Core Supply Chain Activities Including Procurement ...19

Figure 4: Key Procurement Activities within an Organization ...20

Figure 5: Taxonomy of Functions in e-Procurement Applications ...24

Figure 6: Effects of e-Procurement...30

Figure 7: Shift from Managing Transactions to Managing Suppliers ...31

Figure 8: Supply Chain Processes and e-Procurement Strategies ...32

Figure 9: Focus of the Benchmarking Project ...35

Figure 10: e-Business Forms and Their Impact on the Supply Chain ...43

Figure 11: Methodology for the Assessment of Functional Specifications...50

Figure 12: Conceptualization of the Frame of Reference...53

Figure 13: The Variety of Industries Respondent to the Questionnaire ...64

Figure 14: Stages 1-3 in the Factor Analysis Decision Diagram...75

Figure 15: Stages 4-7 in the Factor Analysis Decision Diagram...76

Figure 16: Graphical Representation of a Univariate Distribution...84

Figure 17: Graphical Representation of a Univariate Distribution after Dichotomizing Variables...88

Figure 18: Scree Test for Component Analysis...96

Figure 19: The Model of Factors That Simplifies Procurement Process by Using e-Commerce ...102

Figure 20: Comparison between Model of Factors That Simplifies Procurement Process by using e-Commerce according to the industries perceptions in Iran and Slovenia...111

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Chapter I

1. Introduction

This chapter presents the back ground and different aspects of e-Procurement within the Internet based B2B models in different areas. It starts with a brief introducing of e-Procurement addressing the key elements of its implementation. Then it moves into the problem discussion and following that, it explains the aim of the research and the content of the outline of my thesis.

1.1. Background

E-procurement begins with the automation of the requisitioning, the approval purchase order management, and accounting processes through an Internet-based protocol (Podlogar, 2006). The key elements of this automation include the following:

• A Web-based user interface

• Utilization of standard Internet communication and security protocol

• A software that supports the requisitioning process, including approval, work flow and product catalogue maintenance.

A model of the Internet-based B2B e-Procurement System is shown in the Figure 1.

We can observe that the buyer has a new electronic system at his or her disposal.

Communications from buyers and suppliers, coming over the Internet access system,

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are linked together in the new procurement network. Through this access, the buyer can select from product catalogs the items needed to meet manufacturing or delivery demands. The approval is accomplished online; significantly cutting the cycle time, and the workflow proceeds through the network (Gebauer and Shaw, 2002; Poirier and Bauer, 2001). Buyers can input their needs using the e-catalog included in the Internet-based program. Needs are input as “requests for procurement”. The automation of the process involves all approvals needed to purchase goods. In the automation process, different requests for procurement are merged into one order that is passed to the supplier electronically. The entire process is totally automated through the electronic interchange. The position of a classical procurement officer is no longer necessary because copying the paper request for procurement to the electronic one is no longer needed. In the new environment, the procurement officer tries to understand the supplier’s needs, and assesses the efficiency and the optimum procurement

conditions in their enterprise (Vaupot, 2001; Podlogar, 2006).

The approval is accomplished online, so significantly cutting the cycle time, and the workflow proceeds through the network. The purchase ordering process is automated and feeds directly into the enterprise’s Enterprise Resource Planning (ERP) system for retention, payables, and any reconciliation that may be necessary. Financial services (for credit and payment) and logistics services (for pooled shipments and cross-docking) can be accessed online, speeding those processes (Gebauer and Shaw, 2002; Poirer and Bauer, 2001).

For the purpose of designing the Internet procurement model and the standard for commerce on the Internet, Open Buying on the Internet (henceforth OBI) standard was formed. OBI is an open, flexible frame for e-Commerce’s business-to-business programs. It is designed for the enterprises having a large number of transactions with a low money value.

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These transactions represent 80 percent of all transactions of large enterprises. With regard to the procurement process, the benefits of OBI standard are as follows:

• Buyer’s wanted to have a choice of supplier depending on a business value such as price, quality, etc.

• Implementation of the e-Procurement needs to be independent of the technology used.

• Buyers want a solution based on a fair price without any influence from the system and suppliers already used previously.

• Decrease of time for the entire procurement process from days to minutes.

Source: Adapted from Gebauer and Shaw, 2002

Figure 1: A Model of the Internet-based B2B e-Procurement System

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Enterprises (Poirer and Bauer, 2001) divide the initial savings into three areas:

• Better purchasing information for improved contract negotiation and management results in a seven percent to twenty- seven percent reduction in cost.

• Improved information handling results in a cost reduction for transactions, from as high as $100 per transaction to less than $4 per transaction.

• The cycle time for completing transaction is reduced between thirty percent and fifty percent, from order to delivery.

Added value of e-Commerce in the procurement process is as follows (Van Weele, 1994):

• Effective development of the procurement process between buyer and supplier

• Verification of supplier’s order acknowledgment,

• Development and implementation of computer-based different methods for order and control fulfilment,

• Development of computer-supported database about critical items of procurement process and suppliers,

• Development of a well-defined process for order-handling,

• Successful problem solving, when necessary.

Electronic business is the process which uses Internet technology to simplify certain company processes, improve productivity and increase efficiency. It allows

companies to easily communicate with their suppliers, buyers and customers, to integrate “back-office” systems with those used for transactions, to accurately transmit information and to carry out data analysis in order to increase their competitiveness (Muffatto and Payaro 2004).

Davill et.all (2003) believe that e-Procurement software, designed to simplify the buying process for company employees through approved supplier electronic catalogues has gained the most acceptance (25 per cent) and is expected to maintain

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this dominance in the near future.

By the research conducted by Roberts and Mackay in 1998, they pointed out that senior management were aware that to some extent the impetus had been lost and that a range of electronic commerce technologies could be implemented with greater strategic focus in terms of leveraging on electronic links to increase the volume and type of messages exchanged, to simplify processes and to build closer working relationships with suppliers.

As enterprises look to further simplify their procurement applications deployments, moving more processing from the business units to a central organization, many will consider Business Process Outsourcing (BPO). However, the current challenge that many organizations face is that there is an apparent mismatch between needs of the enterprise and the BPO offerings being pitched by service providers and systems integrators. Many of the large system integrators are approaching BPO as an “all or nothing” offering and not enough attention is being their own technology (ERP systems) at the same time (Race, Stephanie A., 2005).

Information technology (IT) has long been applied to support the exchange of goods, services and information between organizations. It is with the advent of Internet-based e-procurement systems and business-to-business (B2B) electronic markets that the real opportunities for online transactions have opened up across space and over time.

Internet-based e-procurement systems and business-to-business (B2B) electronic marketplaces are different from proprietary IOS that involve EDI. They are open systems that enable firms to reach and transact with suppliers and customers in virtual markets without investments in dedicated systems (Dai and Kauffman, 2001). Figure 2 displays the different IT-enabled procurement mechanisms.

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Source: Adapted from Dai and Kauffman, 2001 Figure 2: IT-Enabled Procurement Mechanisms

According to Girishankar, S. (2000), with more corporate procurement completed online every month, the number of virtual marketplaces in the United States has soared from 300 in June 1999 to more than 1000 in 2000. B2B electronic markets can function as digital intermediaries that focus on industry verticals or specific business functions.

1.2. Problem Discussion

Today, organizations do not ask themselves why to adopt e-Procurement; in fact it is just the opposite; they ask how to do it in a way to get the maximum benefits that they can (Lesnicar, 2002; Podlogar, 2006). We argue that e-Commerce is significantly changing the business processes and new business models are needed, and pose many challenges to existing and future measurement of such changes.

Benefits and simple e-Procurement contribute to a positive perception of e- Procurement, which will gradually lead to actual use (Chen, 2000). Successful organizations in practice are the ones that succeed in process simplification with the help of suppliers. It is also important to share savings that are resulted from

improvement, with suppliers (win-win situation). This kind of business leads to closer and longer connections with business partners (Leonard, 1999; Podlogar, 2006).

Process simplification leads to a great deal of e-Procurement opportunities especially

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because organizations have to react quickly to a changing environment (such as demand variability) and goods and process changes (European Commission, 2000). E- Procurement processes allow participants to easily change rules and eliminate some business partners through the whole supply chain, by for example undertaking direct e-Procurement from the supplier without other partners-thereby simplifying the whole e-Procurement. Generally speaking, however, it is difficult to say if the total number of participants in the whole supply chain will decrease (Mesenbourg, 2002). Those who will be very familiar with buyers' needs and will offer software suitability, will bring the highest added value to a buyer in an instance will stay and develop (Kordez and Jelovcan, 2001; Zupancic and Sedej, 2000; Podlogar, 2006).

The processes are changing with e-Procurement, and it is also important that these changes are monitored and measured. It is necessary that organizations estimate benefits resulting from carrying out the procurement process electronically.

Data processing simplicity, as one of the critical e-Commerce success factors in e- Procurement process, is described more fully in this Thesis. Enterprises endeavor to simplify e-Procurement and supply chain processes by such strategies as business process reengineering and through e-Commerce implementation (Lesnicar, 2002;

Podlogar, 2006).

1.3. Aim of Study and Research Questions

The aim of this work is to thesis addresses a group of business data processing simplicity e-Commerce factors that accrues benefits on the e-Commerce procurement process. The goal of this research is to build a model of factors that simplifying the procurement process by using e-Commerce.

The research question, discussed in this thesis is: What kind of extent does electronic commerce have on the simplicity with regard to processes that are necessary for the execution of the entire procurement process? These processes may capture a supplier's requisition request, bidding, and supplier's selection, contract preparation, ordering from supplier, shipment delivery and payment to supplier. By greater understanding of simplicity extend on e-Commerce implementing into procurement process, enterprise can implement e-Commerce in the procurement process more efficiently.

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Terms used in connection with e-commerce are often used interchangeably and with no common understanding of their scope or relationships. For better understanding, below is the description of basic terms that are mostly used in connection with electronic commerce in procurement process.

By simplicity we mean fast and flexible business processes that are required to react to buyers' demands, whilst assuring the accuracy of relevant data in the process (Lesnicar, 2002). By procurement process we meant: a closed loop process that begins with the requisition and ends with the payment (Dai and Kauffman, 2001; Gebauer and Segev, 1998; Gebauer et al, 1998; Kalakota and Robinson, 1999; Podlogar, 2006;

Shaw et al., 2000).

According to Podlogar (2006), Electronic commerce in procurement process involves the exchange of information using a combination of structured messages (EDI), unstructured messages (e-mail and documents), data access and direct support for procurement business processes using the Internet technology: fax server, e-mail, World Wide Web, EDI (EANCOM, EDIFACT, and XML).

E-Procurement begins with the automation of the requisitioning, the approval purchase order management, and accounting processes through an Internet-based protocol (Podlogar, 2006).

1.4. Disposition of the Thesis

The thesis is divided into five chapters. In the first chapter, the reader is introduced to the background of the research, followed by problem discussion, the aim of study and the research questions. The chapter aims at introducing the reader to the area

investigated as well as giving an understanding of why we investigate it.

In the second chapter, the reader is provided with a literature review of previous research conducted within the area of the overall purpose, which serve as theories for the study with regards to concepts of e-Commerce and e-Procurement. In this chapter, I depict the literature that is the foundation of the study. I try to discuss e-Procurement in general and look at the steps that any big enterprise may take to prepare business processes for successful implementation of e-Procurement. Also by understanding

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simplicity as one of the most important e-Procurement factors, reengineering as the strongly connected process simplification, is taken into consideration. At the end of this chapter, I bring my conceptualizations and frame of reference extracted from literature, which will set as the foundation of this study.

In chapter three, the methodology used for this thesis will be presented. The validity and reliability of the questionnaire will be explained. Also, in this chapter, procedures of Factor Analysis will be discussed.

The gathered data and the credibility of the findings will be analyzed in chapter four.

Details of the reliability and consistency screening will be mentioned in this chapter.

Also the results of Principal Component Analysis in association with answering the research question will be presented.

Fifth and the final chapter consists the findings, conclusions and implications are drawn based on the results of the research conducted. At the end of this chapter, suggestions for further research are presented.

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Chapter II

2. Literature Review

In this chapter, I try to describe the relevant literature surrounding the problem discussion, which takes part as foundation of this study. Review of literature identifies many advantages and opportunities from the field of e-Procurement. In the commercial arena, an organization will procure goods on electronic way only if it will see enough benefits that might be gained with value added services resulting from e-Procurement. In any case, an organization must take very careful steps to prepare business processes for successful implementation of e-Procurement (Podlogar 2006).

2.1. Procurement

2.1.1. General Procurement Definition

Procurement encompasses all activities involved in obtaining goods and services and managing their inflow into an organization (Gebauer and Segev, 1998). Traditionally the corporate function of procurement is divided into strategic and operational tasks.

Whereas the strategic tasks include sourcing activities, supplier management, and design and implementation of buying procedures, operative tasks embrace all transaction-oriented activities such as the excitement of purchase orders (Kaufmann, 1999; Gebauer and Segev, 2001).

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Procurement is the term most commonly employed to refer to the purchasing of goods and services for the day-to-day operation of a business. Procurement is an essential part of any organization's ability to function effectively and efficiently (Steven R Leonard, 2000).

2.1.2. The Importance of Procurement

Through a well-managed procurement business function, organizations can gain numerous benefits identified the strategic importance of the procurement business function (Versendaal et al., 2005).

A company's competitiveness and profit is highly dependable on how procurement is handled within the company. There is a direct influence on the profit because

procurement stands for such a large part of a company's costs. There is also an

indirect influence on the profit due to the large part of the internal costs affecting what happens in the interface between the company and its suppliers (Gadde and

Hakansson, 2001).

Purchasing represents a significant part of a company's total costs. In a study by Hakansson it is stated that purchasing costs often stand for between 40 and 60 percent of a company's turnover. This is an increase from earlier when purchasing did not have such a significant role (Ibid).

According to Gadde & Hakansson (2001), there are a number of reasons why purchasing has become more significant and consists of a larger part of the turnover.

The first reason is that purchasing has gradually become more involved in larger parts of the company's total activity and due to this; the purchasing department's capacity and competence have great consequences for the efficiency of the company.

Purchasing is significant for the company's profitability because of the large volume that it stands for (Ibid).

A second reason is that purchases directly influence the result. One cent less spent on purchasing is one cent extra added to the profit. This expression is often confused with the notion that one cent lower price leads to a higher profit. Nothing could be more wrong, due to the indirect cost associated with purchases. The acquired goods or

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services cannot be seen in isolation, but have to be seen in relation to the function they perform (Ibid).

The third reason for the increased importance of purchasing is the insight that benefits can be made by having deeper and more long-term relationships with a supplier.

These potential benefits concern flow of material, flow of information and cooperation in technical development.(Ibid).

A forth reason for the increased importance of purchasing is the increased complexity that purchasing involves. The more society develops, the larger the differentiation becomes and the more specialized units become. The increased specialization has lead to products that are more sophisticated and a more difficult purchasing process.

International purchases have also increased which has lead to a number of new difficulties concerning the distance to suppliers, handling currencies and different legislations (Ibid).

With the idea that the procurement function has the ability to influence corporate profitability favorably, the functional development has been a topic of great interest.

Departing from the passive, re-active clerical viewpoint of the 70's the procurement function has ability to develop itself in a strategic pro-active function contributing, as much as other business functions, to creation of (sustainable) competitive advantages (Versendaal et aI, 2005). Many authors state this fact that such a significant advantage can be achieved (Porter, 1985; Herberling, 1993; Cavinato, 1999).

Purchasing and procurement have been almost used interchangeably. However they differ significantly in their scope, purchasing refers to the buying material and all activities associated with buying process. Electronic purchasing addresses only one relatively minor aspect of procurement problems companies face. Procurement on the other hand, is broadly defined to include a companies requisitioning purchasing, transportation, warehousing and in-bound receiving processes. Recent procurement strategies focus on restructuring the entire order-to-delivery process rather than on specific tasks within the process. The new procurement models leverage a nearly ideal combination of volume advantage, flexible contracts and valuable supplier's alliance, along with decentralized and user-responsive purchases (Kalakota and Robinson, 2001).

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Croom also distinguished between purchasing and procurement. In his article purchasing was classified as a supplier-facing, boundary spanning activity, and procurement defined as the total process involved in the identification, specification, co-ordination and determination of an organization's resource needs. Then, he classified the purchasing activity as a subset of supply chain procurement. Figure 3 below adopted from Croom, illustrates the core supply chain activities including procurement (Croom, 2005).

Source: Adapted from Croom, 2005

Figure 3: Core Supply Chain Activities Including Procurement

In short, the purchasing function should obtain the proper equipment, material, supplies and services of the right quality, in the right quality, at the right price and from the right source. In this description, the purchasing function is regarded

primarily as an operational activity (Weele, 2002). Procurement refers to all activities involved with obtaining items from a supplier; this includes purchasing, but also

Supply Chain Operations

Procurement Contract Negotiation

Material Management

Design Operations

Specification Needs Identification

Supply Planning

Demand planning Warehousing

Inventory Management

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inbound logistics such as transportation, goods-in and warehousing before the item is used. The key procurement activities and associated information flows within an organization are shown in Figure 4, which is adopted from Chaffey (2004).

Source: Adapted from Chaffey, 2004

Figure 4: Key Procurement Activities within an Organization

2.1.3. Procurement Process and Activities

In the literature a number of different theories and definitions of purchasing,

procurement and supply processes exist. However, much of the literature is relate to purchasing or procurement of indirect goods. In fact no precise differentiation was found between processes of purchasing those two types of goods.

Robinson, Fairs and Wind (1967), made a short summary of the purchasing process description. Their model consists of eight different phases as follows:

Phase 1: Anticipation or recognition of a problem (need)

Phase 2: Determination of characteristics and quantity of needed items Phase 3: Description of characteristic and quantity of needed item

Supplier

Purchase Order

Invoice Delivery

Payment Payment to

Customer Purchase Order

Requisition

Buyer

Approver Originator

Warehouse

Accountant

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Phase 4: Search for and qualification of potential sources Phase 5: Acquisition and analysis of proposals

Phase 6: Evaluation of proposals and selection of supplier(s) Phase 7: Selection of an order routine

Phase 8: Performance feedback and evaluation

Robinson et al. stated that above phases are dynamic and changing and there are relations between the phases, which means instead of occurring sequential they can be parallel.

The primary job process of procurement was indicated by (NECCC, 2002) as follows:

• Search for products and services needed by the organization

• Handle myriad details relating to their requisition

• Approval

• Payment

• Taking responsibility for the delivery of the host of items about which they might or might not know very much

He continued that process was labor-intensive, dominated by paper, often centralized, and subject to countless costly inefficiency due to re-keying, changing prices, product sets and personnel.

According to Dobler and Burt (1996), the purchasing function consists of the essential activities associated with the acquisition of the materials, services, and equipment used in the operation of an organization. The major types of activities are:

• Coordination with user departments to identify purchase needs

• Discussions with sales representatives

• Identification of potential suppliers

• The conduct of market studies for important materials

• Negotiation with potential suppliers

• Analysis of proposals

• Selection of suppliers

• Issuance of purchase orders

• Administration of contracts and resolution of related problems

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• Maintenance of a variety of purchasing records

The procurement process, or concept, encompasses a wider range of supply activities than those included in the purchasing function. In addition, it typically includes a broadened view of the traditional buying role, with more buyer participation in related materials activities (salvage of surplus and scrap) (Ibid). Specific activities usually included in the process are:

• Participation in the development of material and service requirements and their specifications

• Conduct of materials studied and management of value analysis activities

• Conduct of more extensive material market studies

• Conduct of all purchasing function activities

• Management of supplier quality

• Purchase of inbound transportation

• Management of investment recovery activities

2.2. e-Procurement

2.2.1. General e-Procurement Definitions

Traditionally, procurement has involved a number of communication mediums to facilitate procurement process between the various parties. These have included the use of mail, phone, and fax, EDI and more recently, email and the Internet.

Basically, e-Procurement means that electronic communications are used to support all of the transactions that facilitate the procurement process (NECCC, 2002).

In order to develop our understanding a bit further about definition of e-Procurement, it should be mentioned that there are a lot of definitions of e-Procurement suggested in different literature. Below, some of the collected ones are quoted:

• E-Procurement is essentially an Internet\Intranet based purchasing application or hosted service that streamlines buying trading partners, maximizes trade efficiency across the entire supply chain, and provide strategic e-commerce capabilities in Internet time (ITRG, 2002)

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• An e-Procurement technology is defined as a technology designed to facilitate the acquisition of goods by commercial or a government organization over the internet (Brunnelli, 1999 and Carabello, 2001).

• E-Procurement is a technology solution that facilitates corporate buying using the Internet. It has the power to transform the purchasing process because it pervades all of the steps identified by the supply manager (Presutti, 2002).

The success of an e-Procurement system requires efficient processes both at the level of the supplier–purchaser relationship and the level of internal workflow. The

transition from the traditional procurement to e-Procurement requires the analysis and design of new processes in order to minimize the meaningless information circulation (due to bureaucratic documents exchange), the definition of clear and discernible job descriptions and the economical procurement of goods within defined deadlines. A successful transition is subject to a large number of constraints that have to be taken into account, mostly placed by laws, which try to guarantee the transparent

administration of public wealth (Arrowsmith and Arwel, 1998).

The design of the appropriate purchasing processes helps the determination of the proper functional specifications. Functions are capabilities of the e-Procurement system that permit organizations to aggregate disparate sources of information in one consolidated view as well as to facilitate the review and acquisition of goods. In addition, functions may enable organizations to better understand specific procurement patterns. This knowledge allows for effective negotiations with

suppliers. Organizations should address key functional areas such as those presented in Figure 5 (Gartnet Group RAS Services, 2000). The definition of the appropriate functional specification determines, to a large extent, the success of the e-

Procurement system to be introduced.

According to Aberdeen group (2001), "e-Procurement allows companies to automate the tactical processes and workflow associated with purchasing. Purchasing managers through e-Procurement are able to maneuver their way out of massive paper trails and make critical strides in efficiency". The initial rounds of e-Procurement technology are used almost exclusively for purchases that are already on contact with a set group of suppliers. ITRG (2002) and Knudsen (2003), states that e-Procurement includes

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aspects of the procurement function supported by various forms of electronic communication, and its use in both the public and private sectors takes many forms including:

• Electronic data interchange (EDI): inter-organizational information system using structured data exchange protocols often through value added networks.

• E-MRO: mechanism for ordering indirect items from on-line catalogue

• Enterprise resource planning - automation of procurement related workflows including auto-faxing, auto-emailing or other forms of messaging directly with suppliers

• Web-based enterprise resource planning - automated procurement workflows but Web based

Source: Adapted from Panayiotou, Gayialis and Tatsiopoulos, 2000 Figure 5: Taxonomy of Functions in e-Procurement Applications

The main idea of e-procurement is to include the end-user (requester) in the

procurement process via an electronic multi-vendor catalog and to close the process gaps (e.g. re-entry of data) in the supply chain for indirect goods (Puschmann and Alt,

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2005: PI22-133).

Knudsen (2002) by combining the procurement definition and e-Business definition produced the following e-Procurement definition:

“E-procurement: The use of IT (and the Internet) for procurement purposes, including both the technology-mediated exchanges between parties and the electronically based intra-or inter-organizational activities facilitating such exchanges (Ibid: P99)”

“E-procurement is a way of sourcing suppliers and buying goods and services that spends on new practices, new technology, and new services accessed over the Internet (McKie, 2001, P99).”

“E-procurement: The purchase of goods or services through the Internet- forms part of an overall strategic procurement plan. That plan may include strategic sourcing or supplier rationalization, supply chain automation, and participation in one or more market places. Commodities purchased can be operational resources (non production) or production resources (raw materials) (Bu'rca, Fynes and Marshall, 2005).”

E-procurement is a new phenomenon, but what it wants to achieve is not new. As long as companies have been around, they have sought to improve efficiency and effectiveness. E-procurement is an umbrella concept that barks up the same tree, improving efficiency and effectiveness. Neef (2001, p: 58), gives three example of this. Firstly, e-Procurement systems continue the trend of reducing transaction costs by automating processes, replacing human labor with information technology.

Secondly e-Procurement helps to facilitate increased integration, and thirdly, e- Procurement helps to facilitate increased integration, and Neef argues: "e-

Procurement is an important step towards development of the extended enterprise where the supply chain becomes a continuous, uninterrupted process extending from buyer through selling partners". It can also include activities such as:

• Advertising tender;

• Electronic submission of tenders

• Electronic ordering

• Internet sourcing via third parties

• Electronic mail between buyers and sellers

• Electronic mail in contract management

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• Research into supplier markets

• Integration of procurement within the financial and inventory systems

There are some fundamental things the purchasing company wants to achieve when it comes to purchasing. These include reducing the time employees spend looking for a product, service or suitable supplier, reducing the time and cost of administering purchases, reducing cycle times, increasing volume with a few preferred suppliers to get better pricing and other conditions, as well as limiting choices to only a number of pre-qualified suppliers to ensure quality (Bakowski, 2002).

Electronic procurement systems in essence mirror the procurement process through the provision of two distinct, but connected, infrastructures

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internal processing (via, for example, corporate intranet) and external communication with the supply base (via, for example, Internet-based platforms) (Croom, 2001).

E-procurement has been the subject of a great deal of research but again this has tended to focus on the development of inter-organizational electronic networks (De Boer, 2002).

The term e-Procurement results from the electronic support of procurement activities between a purchaser and a supplier through information and communication

technologies (Chaffey, 2002).

According to (Rayport and Jaworski, 2002; Eyholzer, 2000) we understand e- Procurement as the usage of Web-based functions and services (e.g. Catalogue management, requisition, control and approval, receiving and exception processing, financials and payment processing and logistics and supply-chain management) that allow employees of a buying organization to purchase goods and services and allow suppliers to manage and communicate the fulfillment of purchase orders submitted.

2.2.2. e-Procurement Benefits

An e-procurement solution provides access to, and easy purchasing from, catalogues of many different suppliers while eliminating paperwork, automating the approval process and enforcing the purchase polices that apply to each Buyers' suppliers (ITRG, 2002). Typically cost saving is the main motivator for companies to

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implement e-Procurement. As cost per transaction using e-Procurement is reduced by 65% compared to "traditional" procurement transaction. By contrast, the source of saving in B2B auctions comes from accessing a broader base of suppliers budding for the buying needs of organization, thus the saving derived from joining bargaining power would translate into more aggressive discounts for member of the consortia (Davila et al., 2002).

Internet technologies can reduce production times and costs by increasing the flow of information as a way to integrate different value chain activities. The Internet enables value to be created by gathering, organizing, selecting, synthesizing and distributing information (Chaffey, 2004). Aggregation alone can generate savings of 5 to 10 percent. This does not include other process-related savings. Although e-Commerce is not needed for aggregation, it makes aggregation easier, faster, and cheaper (Andrew, 2001).

For many companies, the greatest benefit of e-Commerce will come not from lower prices but from new levels of collaboration all along the value chain, from product development through production and distribution to managing the customer relationship. The ability to use e-commerce tools in order to collaborate with suppliers, distributors, and customers in all these activities will help determine tomorrow's winners (Ibid).

The use of e-procurement is thought to have implications for information asymmetries or impact in inter-organizational relationships and in particular for search and

monitoring costs. Alternative explanations for the benefits of e-Procurement arise from the resource based perspective through which the resources of the firm may be leveraged to achieve competitive advantage with electronic commerce presenting opportunities to enhance firm resources (Dhillon et al., 2000; Rasheed et al., 2001).

The other major benefits of adopting e-Procurement system are reduced operating costs and searching costs, which lead to high returns on investments (Dai and Kauffman, 2000).

According to ITRG (2002), many companies have found immense benefits from their e-Procurement projects, including the following

• Process efficiencies amounting to annual savings

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• Ability to link into existing systems, such as ERP

• Reductions seen in lead times within the procure-to-pay cycle, in some cases by 50%

• Self-invoicing on behalf of clients can add to the bottom line

• Month-end reconciliation can end the problem of the wrong items being ordered or the wrong prices bring offered as business process have been streamlined and all was working off the same catalogue

• The buyer is engaged in more strategic product management, leading to better contracts being negotiated

• Maverick spending is reduced

• Reduction in stock levels can lead to savings of millions of dollars

Companies that have experienced these benefits have reduced cycle times and have better managed relationships with their global suppliers. E-procurement technology also allows a company to reduce the number of interfaces that it maintains with the supplier. The business case for e-procurement is compelling. With the number of cost- effective e-procurement solutions available today, purchasing organizations cannot afford to miss the opportunity to increase profits for their organizations. To make the proposition even more attractive, service providers offer hosted e-procurement solutions that can be inexpensively deployed with little time or effort while

eliminating the burden of ongoing maintenance or support. E-procurement benefits stem from automating procurement activities and streamlining purchasing workflow, both internally and with their vendors (ITRG, 2002).

According to Davila et al. (2002) and Presutti (2002) e-Procurement benefits are:

• Cost savings

• Process efficiency

• Better information flow between buyers and supplier

• Reduced Maverick spending

• Streamlined process

• Better inventory level

Cost savings is the primary rationale for investment across all technology platforms, through the manner in which these savings are delivered varies. Adoption of e- procurement technologies report saving of 42 per cent in purchasing transaction costs

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(Davila et al., 2002).

According to Presutti, (2002), cost reduction and negotiation are one of the reasons that transaction costs fall so precipitously with e-Procurement. Reductions in labour costs in the purchasing process, increase in purchase volumes leads to better price from supplier and leads to better negotiation i.e. suppliers are ready to reduced the price as they get the assurance of transaction from the buying company. The effect of e-Procurement on inter-organization enhances the benefits of e-Procurement on an organization.

Companies using e-procurement report saving of 42% in purchasing transaction costs associated with less paperwork which translates into fewer mistakes and a more efficient purchasing process. In a labour intensive, paper-based purchasing process, transaction costs can range from $70 to $300 per purchase order for example, GE (General Electronic) saw those costs drop to 30%. Other firms have experienced even greater reductions (Presutti, 2002). Different authors have elaborated on the benefits that accrue from adopting e-procurement technologies. These benefits are expected to accelerate the rate of adoption of these technologies once the uncertainties that remain around e-procurement are reduced to levels that encourage significant resources commitments leading towards higher process efficiency (Davila et al., 2002).

The greatest benefit of e-commerce for many companies will come not from lower prices but from new levels of collaboration all along the value chain, from product development through production and distribution to managing the customer relationship. Usability of e-Commerce tools in order to collaborate with suppliers, distributors, and customers in all these activities will help establish tomorrow's winners.

Electronic business is aimed at enhancing the competitiveness of an organization by deploying innovative information and communications technology throughout an organization and beyond, through links to partners and customers (Chaffey, 2004).

Through use of e-Procurement technology and processes, e-Businesses have the opportunity to reduce the cost of the procurement process, to source from a wider range of supplier at lower prices, and to pursue individual employees to conform more closely to corporate procurement policies and practice (McKie, 2001).

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Source: Adapted from Puschmann and Alt, 2005 Figure 6: Effects of e-Procurement

According to Figure 6, the use of Internet technologies in procurement is aimed at realizing faster and more efficient operational procurement processes which bypass the purchasing department and enable those people to concentrate on more strategic tasks. In e-procurement, requesters directly search for and select products in

electronic catalogs which are authorized and negotiated by strategic procurement in advance.(Puschmann and Alt, 2005).

A number of costs which are wrapped up in the procurement process, including the cost of are presented by McKie (2001) as follows:

• Staffing internal purchasing departments

• Maverick buying by employees

• Paper forms, handling, and storage

• The time taken to perform procurement roles

• Delays in the procurement process Managing

• Three way matching

• Cutting checks to pay vendors

• Maintaining large vendor master files

Prior to the introduction of e-Procurement, buyers frequently had to deal with individual transactions. They had to negotiate with suppliers, convert purchase requests into purchase orders, handle queries and ensure the correct allocation of the

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invoices received. In the operational workload, strategic aspects were neglected and buyers had little influence over the choice of suppliers and the purchased products.

Their negotiating power was limited as the purchasing decision was made by the requester or the authorizer and not by the purchasing department. The requester was at the center, with all activities emanating from him or her (see Figure 7).

E-procurement enables companies to decentralize operational procurement processes and centralize strategic procurement processes as a result of the higher supply chain transparency provided bye-procurement systems (Puschmann and Alt, 2005).

The experiences of many failed ERP implementations show that introduction of a new system is only efficient with the redesign of existing business processes. Similarly, implementing an e-procurement system in isolation without considering the entire procurement process and systems involved will not be sufficient (Deise et al., 2000).

Source: Adapted from Puschmann and Alt, 2005

Figure 7: Shift from Managing Transactions to Managing Suppliers

The experiences of many failed ERP implementations show that introduction of a new system is only efficient with the redesign of existing business processes. Similarly, implementing an e-procurement system in isolation without considering the entire procurement process and systems involved will not be sufficient (Deise et al., 2000).

As shown in Figure 8, the various e-Procurement strategies need to be crafted in a company’s procurement process according to their strengths (Riggs and Robbins, 1998; Hughes et al., 1998; Dolmetsch et al., 2000; Kalakota and Robinson, 2001).

According to Puschmann and Alt (2005), e-Procurement benefits fall into two major categories: efficiency and effectiveness. The former consist of process, products and inventory savings, the latter the proactive management of key data and higher-quality purchasing decisions within organizations.

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Source: Adapted from Puschmann and Alt,2005

Figure 8: Supply Chain Processes and e-Procurement Strategies

The more complicated the old paper-based procurement processes, the more

authorization stages and exceptions, and therefore the higher the savings will be. To take advantage of these potentials, the procurement process needs to be redesigned. In the successful practices, this revamp focused on:

• Reduction or elimination of authorization stages

• Regulation of exceptions to a limited degree at the beginning

• Elimination of paper

• Integration of suppliers in the entire process chain

• Consideration of the complete process, from searching for articles through to invoicing (Ibid)

Given the intense publicity surrounding the impact of e-procurement, Croom (2001) states four main benefits of e-procurement as follows:

• Financial performance, but not as much as widely 'hyped' benefits promoted in the press

• Improved information flow;

• Improved internal and external communications;

• Improvements in planning and control.

Then he continued that a major concern is the apparent lack of clear strategic awareness of the implication and benefits of e-procurement (Croom, 2001).

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2.2.3. e-Procurement Implementation Success Factors

In today’s economic climate, cost containment and organizational efficiency are critical to a company’s success. E-procurement, the automation of a firm’s

procurement process, is becoming increasingly recognized for its ability to improve business operations and reduce expenses. Like any technology-based system, however, it may have little effect if not carefully implemented and managed.

Based on the observations (Tony Chiravolo, 2004), the following list of key success factors is offered:

Obtain top management support to encourage acceptance throughout the organization. Draw a direct link between your company’s goals and the benefits of e- Procurement. These include both direct and indirect cost savings, as well as the shift in focus from individual transactions to a high-level vendor management strategy.

Additionally, assign an executive-level “champion” to promote the importance of the initiative to first to management, and then throughout the organization.

Establish baseline metrics. A preliminary analysis of existing data (e.g., overall spending, transaction/administrative expenses, costs broken down by supplier and product category, etc.) will enable you to identify improvement opportunities, negotiate with suppliers more effectively, and benchmark your post-rollout results.

Undertake a “strategic sourcing” effort prior to system implementation.

Rigorously evaluate suppliers on a wide range of quantitative and qualitative criteria, then select a small number of them in each product category. Benefits of forging these

“preferred provider” relationships typically include enhanced service level agreements and “leveraged buying power” incentives.

Do not simply mirror your manual purchasing process. Instead, reconfigure or eliminate steps that don’t add value. Better yet, treat this initiative like the

reengineering project that it is, and create workflows and business rules from scratch.

Be sure to request your vendor’s assistance in seizing new opportunities unique to an online environment.

Begin your rollout with areas of spending that offer the largest and fastest return-on-investment. Starting with “low-hanging fruit” enables you to quickly

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demonstrate the value of e-Procurement to users, which will encourage their buy-in and cooperation.

Never stop measuring results and refining processes. Continually evaluate vendor performance and user satisfaction, and actively seek out ways to further reduce expenses and increase efficiencies.

Communicate, communicate, communicate! Keep users fully informed of the business drivers, benefits, and status of the project, and provide training and support tools to eliminate unnecessary frustration with the system. Consider publicizing post implementation cost savings, process improvements, strategic initiatives, and other positive outcomes on an ongoing basis.

Once limited to the acquisition of goods, e-Procurement has proven to be effective with regard to services, including those related to human capital. Its powerful

management capabilities enable companies to strike a purposeful, proactive, and cost- effective balance of fixed (core) and variable (contingent) workers. A well-planned and executed workforce management strategy – one that combines technology and continuous collaboration with Talent providers – can directly impact bottom line results and contribute to the achievement of business objectives. However another research was conducted by Puschmann and Alt in 2005, in which they had a qualitative benchmarking among successful practice companies and drawn together the success factors identified in the benchmarking study and mapped them against the successful practice companies. The definition of objects of comparison to ensure the comparability of the successful practices were required (Camp, 1989). In the e- Procurement benchmarking project, these objects were defined during the first consortium meeting. The objects of comparison were:

• Introduction project

• The procurement organization

• Content and catalogue management

• Supply chain processes and system architecture

• Operational efficiency (see Figure 9).

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Source: Adapted from Puschmann and Alt, 2005 Figure 9: Focus of the Benchmarking Project

During the preparation phase objects of comparison and criteria were defined and discussed in the first consortium meeting. These objects are presented in Table 1:

Table 1: Defined Criteria for Successful Practices

Source: Adapted from Puschmann and Alt, 2005

The results of this benchmarking study conducted by them were as follows:

Introduction Project: Many large companies have a similar situation in their indirect procurement supply chain prior to the implementation of e-procurement.

Little attention was paid to MRO procurement, and manual, paper-based procedures prevail. Not only are they labor-intensive and harbor a considerable error potential, but many transactions simply bypass the purchasing department and are carried out directly with local suppliers. Especially the large benchmarking companies started e- Procurement with organizational concepts on corporate level. Typically, the areas

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purchasing, IT and financial accounting had to be coordinated in order to define common goals. Successful e-procurement implementations included more than merely a new IT system. The benchmarking project highlights five factors for the implementation of e-Procurement in large organizations:

• Realignment of the purchasing operation

Reorganization of the procurement process

• Preparation of catalogues offering the right amount of good quality content

• Embracement of suppliers at an early stage

• Integration of e-procurement and back-end systems

Organization: Prior to the introduction of e-Procurement, buyers frequently had to deal with individual transactions. They had to negotiate with suppliers, convert purchase requests into purchase orders, handle queries and ensure the correct

allocation of the invoices received. In the operational workload, strategic aspects were neglected and buyers had little influence over the choice of suppliers and the

purchased products. Their negotiating power was limited as the purchasing decision was made by the requester or the authorizer and not by the purchasing department.

The requester was at the center, with all activities emanating from him or her.

E-procurement brings about important simplifications of the MRO procurement process and reduces this operational workload for buyers by decentralizing the operational procurement process. If the procurement process is to be faster and more convenient, the number of authorization stages must be radically reduced. Supplier management is another area of organizational change.

E-procurement provides the opportunity to establish preferred suppliers in the MRO area as well (Smeltzer, 2001). For this purpose it is necessary to implement supplier management as part of the e-procurement project. As most of the large companies have decentralized procurement structures in place, all of the companies analyzed implemented a central coordination instance in order to have better control over the products and services to be purchased on a company-wide basis.

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Content and Catalogue Management: Despite the reengineering of the procurement process, content management is another key factor for successful e-Procurement implementation (Smeltzer, 2001; Poole and Durieux, 1999). Puschmann and Alt, (2005) observed four strategies among successful practice companies:

• Intranet catalogue: Electronic multi-vendor product catalogues hosted on a company’s own intranet to pool enterprise wide demand and optimize procurement processes.

• Punchout: A catalogue hosted on the supplier’s web site (e.g. Dell) if products are more complex and need to be configured with a product configurator.

• Auction: Auctions to leverage price reductions through supplier competition. Auctions are suitable for products and services with low complexity and allow comparison among different suppliers.

• Request for quotation (RFQ): In settings with low frequency of use and high complexity, RFQs are an instrument for inviting suppliers to submit bids based on previously published specifications.

Supply chain processes and system architecture: Compared to the internal focus of traditional logistic approaches, SCM emphasizes the management of upstream and downstream relationships and the role of supply chain optimization to increase customer value at less cost (Christopher, 1998; Ross, 1998). Examples of SCM initiatives are just-in-time, zero inventory, efficient consumer response, vendor- managed inventory or continuous replenishment (Kalakota and Whinston, 1997).

SCM involves three areas to deal with (Christopher, 1998): order processing

activities, physical activities, and order-related financial activities. The experiences of many failed ERP implementations show that the introduction of a new system is only efficient with the redesign of existing business processes. Similarly, implementing an e-procurement system in isolation without considering the entire procurement process and the systems involved will not be sufficient (Deise et al., 2000).

Operational efficiency: According to a study from Intersearch Corp. (1998),

approximately 80 percent of all purchasing transactions are spent on indirect products and services. Most Fortune 100 companies have in excess of 40,000 suppliers of indirect goods but purchase less than US$10,000 annually from 80 percent of those suppliers. E-procurement provides an opportunity to consolidate sources and control

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maverick buying, which can account for dramatic savings. These cost savings are one of the most important motivations for e-Procurement. Nearly all of the companies analyzed in the benchmarking study have confirmed operational efficiency.

The benchmarking study conducted by Puschmann and Alt in 2005showed that companies which successfully implemented e-procurement rely on proven concepts regarding introduction, organizational change, content and catalog management, procurement processes and system architecture in order to achieve operational efficiency. The successful practices demonstrate that e-Procurement is merely a non- technical issue. The effort undertaken to implement e-Procurement as a strategy is mostly spent on organizational aspects and the redesign of procurement processes rather than on technical questions. All successful practices implemented a globally oriented commodity coordination board to agree upon the products purchased via the e-procurement solution. The strong decentralization of the procurement function in large companies was a barrier to achieving synergies from pooling volumes at a corporate level. E-procurement enabled companies to gain greater transparency over their procurement portfolio with the availability of more detailed data (Ibid).

2.2.4. Impact of e-Procurement on Procurement Work

During the last year or so there has been a shift in the attitude towards e-Procurement and e-business as well. The hype has to some extent subsided, and companies are becoming more aware and demanding a solid business case before jumping on the e- something bandwagon. The Internet is not a miracle cure for poorly functioning purchasing organizations (Van Weele, 2002).

Expectations were great at the end of the 20th centaury but nowadays it seems as though the harvesting did not fully materialize. Many of the anticipated benefits came mainly from improving operational efficiency, and also from reduced input costs. The follow- up studies that have been done indicate that savings from increased

operational efficiency were very hard to find. Instead, the rationale for implementing e-Procurement solutions has shifted towards compliance, increasing leverage, etc (John, 2001). Another example tells the same story; ROI has been hard to measure and the e-Procurement initiative had been seen as an infrastructure project and as an

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